What interest rates do small business loans typically have in the UK?

The short answer — typical UK SME loan interest rates

Most established UK SMEs see small business loan interest rates ranging roughly from 6% to 30% APR, depending on the product, risk profile, security, and term. Secured borrowing usually sits at the lower end of the range, while unsecured, higher-risk, or short-term facilities tend to cost more. Always compare the total cost of credit, not just the headline rate.

Rates vary by product type and whether pricing is expressed as APR, a daily or monthly rate, a margin over base rate, or a “factor rate.” Different lenders present costs differently, so a like‑for‑like comparison is essential. The table below summarises typical bands seen in the market for established SMEs.

Business finance product	Typical interest/cost range	Notes
Secured term loan	~3%–12% APR	Lower risk due to collateral; pricing varies with LTV, asset quality, and term.
Unsecured term loan	~8%–30% APR	Heavily dependent on credit strength, cash flow, and time trading.
Revolving credit facility/overdraft	~8%–35% APR equivalent	Often quoted monthly (e.g., 1%–3% per month) plus fees; pay interest only on usage.
Asset finance (HP/lease)	~5%–15% APR	Asset as security can reduce rates; terms usually 1–5 years.
Invoice finance (discounting/factoring)	~1.5%–4.5%+ over base (discount margin) + service fee	Effective cost depends on utilisation, debtor quality, and facility size.
Merchant cash advance	Factor rate ~1.1–1.5 (APR can be 20%–80%+)	Repaid as % of card takings; expensive but flexible and unsecured.
Growth Guarantee Scheme (GGS) loans	Broadly similar to unsecured loans of comparable risk	Government guarantee to lender; pricing set by lender within scheme rules.

These figures are indicative only and subject to change, status, credit checks, affordability, security, and lender criteria. The Bank of England base rate and market conditions also influence pricing over time. Focus on effective annual cost, repayment structure, fees, and early settlement terms to judge value.

What “good” looks like for established SMEs

For a profitable, asset-backed SME with clean credit and strong affordability, single‑digit APRs are achievable in secured products and sometimes in top‑tier unsecured offers. For smaller loans, newer businesses, or higher perceived risk, rates will typically be higher. The “best” rate is the one that is sustainable for your cash flow and appropriate to your risk profile.

Instant clarity

Ask lenders for the APR or an APR-equivalent where possible, including arrangement fees, drawdown fees, and any non‑usage or service charges. If a factor or monthly rate is quoted, request a simple effective annualised comparison before you decide.

What drives your interest rate? Key pricing factors

Lenders price to risk, duration, and cost of funds. They also consider operational complexity and sector outlook. Understanding the drivers helps you anticipate where your quote might sit.

Core risk factors that affect SME loan pricing

• Security and loan‑to‑value (LTV): Strong collateral and lower LTVs usually reduce rates.
• Trading history and financial strength: Longer track record, profitability, and stable cash flow improve terms.
• Credit profile: Company and director credit files, CCJs, arrears, and previous defaults matter.
• Sector risk: Cyclical or perceived higher‑risk sectors may be priced higher.
• Loan size and term: Very small loans or very short terms can cost more on a percentage basis; very long terms can add interest cost over time.
• Purpose and use of funds: Working capital vs. asset purchase vs. expansion can influence risk assessment.

Fixed vs variable rates

Fixed rates provide payment certainty for budgeting, often preferred for term loans and asset finance. Variable rates track a benchmark (for example, a margin over base), offering potential benefit if rates fall, but exposing you if they rise. Invoice finance commonly uses a discount margin over a base rate, with separate service fees.

Fees and total cost of credit

Beyond the nominal rate, factor in arrangement fees, documentation fees, valuation or onboarding fees, annual facility fees, and early settlement charges. Some revolving lines and invoice finance facilities include minimum or non‑utilisation fees. The right comparison is total expected cost over the time you plan to use the facility.

Illustrative pricing tiers

• Prime profile: Clean credit, strong DSCR, stable sector, and solid security — often low to mid single‑digit APR for secured, high single‑digit to low teens for unsecured.
• Mid profile: Minor blips, lighter security, shorter trading — mid‑teens to mid‑twenties APR typical for unsecured; low‑teens for asset‑backed.
• Challenged profile: Thin credit, prior issues, volatile sector — pricing may sit in the high‑twenties or above for unsecured and short‑term products.

Typical rates by product type — deeper dive

Each product prices risk and utility differently. Below are practical ranges and what to expect in underwriting. These are broad market observations, not offers or guarantees.

Secured term loans

Typical range: roughly 3%–12% APR depending on collateral quality, LTV, and borrower strength. Property‑backed facilities, conservative LTVs, and longer, predictable cash flows pull rates down. Expect valuation, legal, and arrangement fees to apply.

Unsecured term loans

Typical range: roughly 8%–30% APR depending on size, term, and risk. Shorter terms, small balances, or challenged credit elevate the rate. Director guarantees are common and can improve eligibility.

Revolving credit facilities and overdrafts

Typical range: the effective annual cost often sits around 8%–35% APR equivalent, though pricing may be quoted monthly (for example, 1%–3% per month) plus fees. You pay interest only on drawn funds, making this flexible for seasonal cash flow. Non‑usage fees and renewal charges may apply.

Asset finance (hire purchase and leasing)

Typical range: roughly 5%–15% APR with the asset as security. Newer, standard assets attract sharper rates than specialised or fast‑depreciating equipment. Balloon payments, VAT deferrals, and seasonal profiles can tailor affordability.

Invoice finance (factoring and discounting)

Pricing structure: discount margin often 1.5%–4.5%+ over base on funds advanced, plus a service fee typically expressed as a % of turnover or limits. The effective cost depends on utilisation, debtor quality, concentration, and additional services. For B2B firms with long payment terms, the net cost can be competitive versus short‑term borrowing.

Merchant cash advance

Pricing structure: factor rates around 1.1–1.5 applied to the advance, repaid via a percentage of card takings. The implied APR can be 20%–80%+ depending on repayment speed and fees. MCAs are unsecured, fast to arrange, and align repayments with takings, but they are among the pricier options.

Growth Guarantee Scheme (GGS) loans

The government provides a partial guarantee to the lender, not a subsidy to the borrower. Rates are set by lenders within scheme rules and broadly reflect unsecured market pricing for your risk profile. The benefit is improved access to finance for eligible SMEs rather than guaranteed low rates.

Business credit cards and alternatives

While not the focus of this page, many SMEs use business cards with APRs often between ~14.9% and 34.9% variable, plus fees. Cards can be cost‑effective for short-term purchases repaid in full each cycle. For larger or longer-term needs, structured facilities usually work out cheaper and cleaner.

How to secure a lower rate — practical steps and pitfalls

Small changes in preparation can materially improve offers. Think in terms of risk reduction, transparency, and fit‑for‑purpose product choice. Below are pragmatic actions that often lead to sharper pricing.

Steps to improve your eligibility and rate

• Strengthen affordability: Keep debt service coverage robust with realistic projections and explain variances.
• Offer collateral where appropriate: Quality security and lower LTVs reduce lender risk and cost.
• Tidy credit files: Correct errors at credit reference agencies and settle small adverse markers if possible.
• Show stable trading: Provide up‑to‑date management accounts, debtor/creditor ageing, and bank statements.
• Match product to purpose: Use asset finance for equipment, invoice finance for long payment cycles, and term loans for longer‑dated investments.
• Request like‑for‑like quotes: Ask for APR or APR‑equivalent and a clear list of all fees.

Common pitfalls to avoid

• Chasing the lowest headline rate only: Total cost, repayment profile, flexibility, and fees matter just as much.
• Over‑borrowing or over‑extending term: Interest accumulates; align term to asset life or cash flow benefits.
• Ignoring covenants and fee schedules: Non‑usage, renewal, or early settlement charges can change the economics.

How Best Business Loans helps

We don’t lend money ourselves; we help you navigate to relevant providers based on your business profile and goals. Our AI‑driven matching and network of lenders and brokers can save you time and help you compare suitable options. We aim for clarity, suitability, and a smooth route to informed decisions.

If you’re exploring UK small business loans, you can submit a free Quick Quote to check eligibility with no obligation. You’ll receive introductions to finance providers who may be able to help. You stay in control and decide what fits your cash flow and risk appetite.

FAQs, compliance notes, and next steps

The answers below address common questions, using straightforward language to help you compare options fairly. For personalised guidance, you can start with a Quick Quote and review matched provider proposals. Always read full terms before committing.

What is a “good” interest rate for a UK small business loan?

There is no single “good” rate, only a fair rate for your risk profile and facility type. As a reference, established SMEs with strong credit may see single‑digit APRs on secured borrowing and high single‑digit to low‑teens on the best unsecured offers. If your offers are materially higher, revisit security, affordability, or product choice.

Are rates fixed or variable?

Both exist. Fixed rates give certainty; variable rates move with benchmarks such as the Bank of England base rate plus a margin. Many invoice finance facilities use a variable discount margin, while term loans and HP often fix the rate for the term.

Do government‑backed schemes guarantee lower rates?

No, the UK’s Growth Guarantee Scheme gives lenders a partial government guarantee to support access, not a borrower subsidy. Lenders set pricing within scheme rules according to your risk, purpose, and term. Always compare scheme and non‑scheme options side by side.

How do factor rates compare to APR?

A factor rate (such as 1.3) is a multiplier on the advance rather than an annualised percentage. The implied APR depends on how quickly you repay and any fees. Ask for an APR‑equivalent and total payback over your expected repayment period to compare properly.

How fast can I get a rate and funds?

Simple unsecured facilities and merchant cash advances can be fast, sometimes within days of submitting full documents. Asset‑backed and invoice finance facilities may require valuations, onboarding, or legal work, which takes longer. Speed should be balanced against cost, flexibility, and suitability.

Can improving my credit score reduce the rate?

Yes. Correcting errors, reducing revolving utilisation, and maintaining timely payments all help. So does demonstrating consistent profitability and positive cash flow trends.

Compliance, clarity, and fair presentation

Best Business Loans operates as an independent introducer, helping you find suitable commercial funding providers. We are not a lender and do not provide financial advice. All finance is subject to status, credit checks, affordability assessment, security (where applicable), and lender criteria.

Any interest rate ranges or examples shown are illustrative only and not offers. Fees and charges vary by lender and product, and rates can change. Ensure all promotions you rely on are clear, fair, and not misleading, and read full terms and conditions before proceeding.

Summary: key takeaways

• Typical UK SME loan rates range roughly from 6% to 30% APR, depending on product, risk, and security.
• Secured borrowing is usually cheaper; unsecured, short‑term, or revenue‑linked options are pricier.
• Compare total cost of credit, not just the headline rate, and request APR or APR‑equivalent.
• Improve eligibility by strengthening affordability, offering security, and matching product to purpose.
• Best Business Loans connects you to suitable lenders and brokers so you can compare options with confidence.

Updated: October 2025. Information is general and may change; always verify current rates and eligibility with providers.

Ready to explore your options? Submit your Quick Quote for a free, no‑obligation eligibility check and introductions to relevant providers. It takes minutes, is secure, and helps you move forward with clarity.